Today we are going to take a look at a turbulent stock right now: Lufthansa!
Airlines are usually not our favourite, but here we see an opportunity that we don't want to deprive you of.
We all know that air traffic will resume after corona, but which companies will survive the fulminant crisis? We are playing a game of life and death here - but the right choice can bring a sweet Christmas surprise. Why Christmas? Because by then a concrete candidate for a vaccine will be emerging, which may be rolled out in the first half of 2021. Yes, we are talking about the time frame of a whole year until international air traffic can get going again. And yes, a vaccine is the basic prerequisite for the globalized world we knew until recently. Without a vaccine there will be no broad immunity, and without broad immunity there will be no free international travel.
So, which companies have a reasonable chance of surviving? Ironically, once again, those companies that have not been able or willing to build up reserves are being supported. "Help, we have spent our profits over the last few years to buy back our own shares! Now we have no money, have to reduce staff, unless the state helps us!" It is what it is.
We will base our hypothesis therefore on the concept of the 'flag carrier'. Every country needs its own airline to represent it. To have an "own" airline in the country is a question of status, strategy and social policy.
Short list of flag carriers: - Austria: Austrian Airlines (owned by Lufthansa) - Great Britain: British Airways - Belgium: Brussels Airlines (also part of Lufthansa) - Russia: Aeroflot - Air Canada - Air China - Air France - ....
Lufthansa is the biggest German airline, was founded in 1953 an is an ingrained part of national identity. Lufthansa Group employs 135000 people. That is why, officially as of the end of last week, Lufthansa is going to receive a cash infusion of 10 Billion € .
A quick look at the chart above shows that crises are not foreign to Lufthansa. In the last 23 years there have been at least 8 crises: 9/11, the Iraq war and SARS, the financial crisis/ the Great Recession, volcanic eruptions and repeatedly re-igniting strikes, the Arab Spring and now COVID-19. All the while the Lufthansa share price has remained within a relatively stable corridor of 8 - 25 euros. Lufthansa will also master this crisis. It will survive thanks to government support and has the potential to double or even quadruple its share price when COVID-19 is over.
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Disclaimer: Actions speak louder than words, we own some Lufthansa shares.